Short leases are an all too common problem for owners of flats when they come to sell their property. The root of the problem is that a lease is a wasting asset, which means that as time goes on it loses value. Even as prices in the property market rise, a flat with a shorter lease will be worth less than a comparable flat with a longer lease. This issue has come into sharp focus in recent years as the drive for leasehold reform has emerged from relative obscurity to become mainstream news. Gone are the days when a shorter lease might be overlooked on a sale. Now many buyers are better informed and less inclined to purchase a flat that doesn’t have a lease with plenty of years remaining to run.
If this situation is sounding familiar, it’s likely that all is not lost. The Leasehold Reform, Housing and Urban Development Act 1993 should give you the right to claim an extended lease, so long as you have owned your flat for at least 2 years and provided your lease was originally granted for a term of over 21 years. The right entitles you to an extension of 90 years in addition to the remainder of the existing term, at a ground rent of a peppercorn (i.e. nil), in return for paying your landlord a premium.
The additional 90 years will almost certainly be sufficient to satisfy most potential buyers, however the length of time it generally takes to complete a statutory lease extension claim does not fit well with a sale. To overcome this hurdle, the benefit of a claim you initiate can be assigned to your buyer on completion of your sale. This should allow your sale to proceed to completion quickly, whilst providing the buyer with a means to circumvent the 2-year ownership qualification criteria and obtain that all important lease extension themselves at a later date.
However, there may a reason why your buyer cannot agree to taking an assignment of a lease extension claim. Perhaps your lease is too short for their mortgage lender’s requirements or it might simply be the case that they do not wish to take on the hassle and cost of dealing with a claim after they’ve purchased the property. If your buyer will not entertain taking an assignment of a claim, you still have the option of approaching your landlord to request a voluntary lease extension outside of the statutory process. A voluntary lease extension can usually be concluded within a more sale friendly timeframe, although inevitably it will take some time to negotiate. If your landlord is agreeable to proceeding with a voluntary extension, your solicitor can take steps to ensure that the extension completes on the same day as your sale. This allows you to use the sale proceeds to pay for the extension and guarantees the buyer a flat with a healthy lease term.
Steven Thom is an Associate Solicitor at Blake Morgan LLP